Economists React: If Worst Happens in Japan, All Bets Are Off

Economists and others weigh in on the economic effects of the Japanese earthquake and tsunami.

—At this stage, it’s too early to come up with meaningful estimates of the overall impact of the terrible events in Japan. And, in economic and financial terms, the effects may be dominated by other challenges facing the global economy, including still elevated oil prices and rising interest rates. And much still hinges on the radioactive threat to Japan’s more urbanised areas: if that threat fails to transpire, the [1995] Kobe quake provides a useful framework but if the worst happens, all bets are off. –Stephen King, HSBC

—The government is focused on controlling the mounting nuclear catastrophe. It is obvious to everyone that the national infrastructure has been impaired in a very important way: Ports are wrecked. The damage extends for hundreds of kilometers up and down the coast, according to satellite pictures. The capacity to produce electricity has been reduced by as much as 40% for now, and probably will be limited to less than 80% of pre-quake/tsunami potential for a very long time. Major companies are shut down because their plants are wrecked, or they cannot get electricity to operate, or they cannot ship their products, or their suppliers are impaired. We have yet to experience all the financial dislocations from this disaster. –Carl Weinberg, High Frequency Economics

—A lot of physical capital in Japan has been destroyed by the tsunami tragedy alone. And more importantly we will never be able to put a value on the loss of human life or the physiological trauma that has been brought upon the Japanese people from these events. But adding the potential for a serious nuclear accident to the equation is nearly incomprehensible… Policy makers should recognize that meaningful stabilizing actions can add enormous value to an incomprehensible situation where risk premiums have skyrocketed. I hope the BoJ understands that it is the one institution in the world that can act swiftly in financial markets to instill some sense of order. I do not believe that there are many Japanese policy makers (or market participants) who believe the “long term” prospects for Japan are so dim that we should be at equity valuations which are only a few percentage points from the levels reached in mid 2003 or early 2009. But we need believers with strong hands at the moment and that is what central banks are for! –David Zervos, Jefferies & Co.